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On April 1, 2008, the City of Chicago’s real estate transfer tax jumped 40% from $7.50 to $10.50 per $1,000 of sales price. Buyers and sellers of residential and commercial real estate now share the responsibility for paying the increased tax, reflecting another important change to the existing ordinance. The additional $3 per $1,000 of sales price (referred to as the “CTA portion”) will now be paid by the seller, while the buyer will continue to be responsible for $7.50 per $1,000 of sales price (referred to as the “City portion”).
A Brief History
On February 6, 2008, the Chicago City Council reluctantly voted to amend Chapter 3-33-030 of the Chicago Real Property Transfer Tax Ordinance to raise the existing transfer tax by 40%. The increase was tied to a controversial funding package passed by the Illinois General Assembly aimed at providing additional money to the Chicago Transit Authority (CTA) in order to avert drastic service cuts and fare hikes. The higher transfer tax is expected to generate approximately $63 million in additional annual revenue for the CTA.
Prior to this amendment, the Chicago Real Property Transfer Tax Ordinance placed the burden of paying the transfer tax solely on the buyer. However, in an effort to blunt the negative impact the increase is expected to have on the already weak real estate market, the City Council further amended the ordinance on March 10, 2008, to allocate the increase in the transfer tax ($3 per $1,000 of sales price) to the seller.
Buyer Beware
Despite the City Council’s efforts to spread the burden, buyers should be aware of a hidden risk that could be lurking in their sales contracts. Many existing form real estate contracts allocate payment of the entire municipal transfer tax to the buyer–in accordance with the provisions of the ordinance prior to the recent amendments.
It is important to note that when a contract in Illinois specifically addresses a point of law, the contract provision will prevail over the relevant statute. Therefore, if a standard real estate sales contract allocates all municipal transfer taxes to the buyer, then the allocation set forth in the amended ordinance becomes irrelevant. In that scenario, the buyer will be required to pay the entire transfer tax of $10.50 per $1,000 (1.05%) of sales price.
Parties involved in a real estate transaction can avoid this trap by (i) making sure the purchase agreement specifically states that the municipal transfer taxes will be paid by the party upon whom the ordinance places responsibility, or (ii) if the contract allocates the entire municipal transfer tax liability to you, factoring this expense into the purchase price.
Even with this significant transfer tax increase, certain buyers in residential real estate transactions can find some relief. The Chicago City Council also amended Section 3-33-060 of the ordinance to provide for a refund of the CTA portion ($3 per $1,000 of sales price) to buyers age 65 and older who can demonstrate that the sales price was $250,000 or less, and who occupy the property as their personal dwelling for at least one year following the date of purchase.
What’s the Damage?
Although buyers continue to bear the brunt of the applicable real estate transfer taxes, sellers now share a greater portion of the burden. To date, there have been no changes to the real estate transfer taxes assessed by the State of Illinois or Cook County. Thus, as of April 1, 2008, the following state, county and city transfer taxes will be assessed on the sale of all residential and commercial real estate in the City of Chicago:
- Illinois
$1 per $1,000 of sales price (seller’s responsibility) - Cook County
$0.50 per $1,000 of sales price (seller’s responsibility) - City of Chicago
$7.50 per $1,000 of sales price (buyer’s responsibility)
$3 per $1,000 of sales price (seller’s responsibility)
The new Chicago Real Property Transfer Tax Declaration (Form 7551) is available online in the Department of Revenue section of the City of Chicago website. You can also obtain a copy by visiting the Chicago Department of Revenue office at 333 South State Street, DePaul Center LL30, Chicago, Illinois 60604.
© 2010 Much Shelist Denenberg Ament & Rubenstein, P.C.About the Author
